Over the past few months I have been hearing an increase of complaints about the Ontario Interactive Digital Media Tax Credit (OIDMTC), particularly about how the OIDMTC is actually inhibiting economic growth by SMEs (small and medium enterprises).
Before I go any further into this topic, I want to clarify that any assumptions within this article based on my own interpretation of the intent of the OIDMTC.
My understanding of the OIDMTC is that they were created to support the growth of Ontario’s Interactive Digital Media (IDM) industry by providing a tax credit to Ontario-based incorporations that employ residents of Ontario.
The OIDMTC, while reported on a project basis, is filed by the company by taxation year. So as a company, you submit one kit of documents for each project completed that fiscal year, which is similar to the arrangements of other tax credits administered by the Ontario Media Development Corporation (OMDC): the Ontario Sound Recording Tax Credit and the Ontario Computer Animation and Special Effects Tax Credit.
When a company sets up its own full-service IDM shop, it is pretty straight-forward to work with the regulations of the OIDMTC as they are. The problems I hear are coming up mostly with companies working in the ‘Convergent’ production space – making IDM content for television productions. Many of these productions are led by TV production companies, or small interactive creative shops – both with limited in-house design and programming personnel, often outsourcing actual development (or ‘production’ if you are reading this article with a TV mind) to a 3rd party IDM studio instead of ‘staffing up’ for the production.
In television production, it is common practice to use tax credits to close the funding gap on a per project basis. This practice does not necessarily translate as well in the IDM space due to the regulations of the OIDMTC.
Because the OIDMTC was set up to support the growth of interactive studios – to help them hire Ontario residents to the projects, being a TV production company or creative shop and hiring out all of the production of the interactive content to 3rd party studios is outside of the spirit of the Fund. Now, the studios hired may be eligible for a reduced OIDMTC, but that funding is intended to help them grow their studios, not to invest into projects not owned by the studio.
Does this make the OIDMTC useless? No. It means we need to, as an industry, find ways to work within the spirit of the tax credit, which is to sustain an industry. The difficulty for the OIDMTC is the growing volume of what “interactive digital media” means. The needs and uses for the OIDMTC contribution within ‘convergent’ studios is different than that of formal ‘game’ studios, different from ‘webisode’ producers, etc. We need to decide if we need the OIDMTC to continue to support studios and the industry as a whole, or if we need them to focus on helping close funding games for IDM projects.
I don’t feel as though I can propose a solution that will satisfy all types of producers.
I will recommend that we need to find ways to encourage collaboration. We are an industry of SMEs – everyone has their strengths and their weaknesses. Inter-company co-productions are going to become more common. The OIDMTC will need to find ways to help support this business model.
What I will caution against is transitioning the OIDMTC from a corporate-based tax credit into a project-based tax credit like the Ontario Film and Television Tax Credit (OFTTC). Unlike film and television productions where 90% of the workforce is hired on as contractors, interactive studios have staff. To shift the OIDMTC from supporting companies to supporting specific projects will only shift the problems for SMEs from chasing money to make a project to chasing personnel to hire on very short contracts. We need to encourage sustained growth of studios, and through that, encourage stability of jobs in the Ontario interactive digital media industry.